Obamacare: 10 FAQs from Americans who got dreaded cancellation letter

by jmaloni

Submitted

Sat, Nov 16th 2013 07:00 am

Submitted by Dottie DeHart

DeHart & Company Public Relations

You'd love to spend the next month and a
half decking the halls, enjoying festive parties, and shopping for gifts for
your family and friends. Unfortunately, if you're one of the millions of
Americans who buy their own health insurance, the "silver and gold" that will
dominate your thoughts this holiday season is the silver and gold (and bronze
and platinum) designations of the Obamacare health plans.

That's right. Millions who buy
individual health insurance have received letters from their providers (or will
soon receive them) saying their policies have been canceled because they don't
meet the requirements of the Affordable Care Act. Often the letters suggest a
"similar" ACA-compliant plan that is - surprise! - a lot more expensive.

"For most of the recipients these
letters are an unwelcome holiday surprise," says financial counselor Eric
Tyson, New York Times bestselling author of "Personal Finance For Dummies, 7th
Edition." "They feel blindsided. In many cases they worry about whether they
can afford hundreds of dollars more a month in premiums or pay a steeper
deductible than before."

ACA supporters point out that the
ACA-compliant "replacement" plans are pricier because they offer more benefits
- but many people chose their (now canceled) plans precisely because they
didn't want or need, say, maternity coverage or prescription drug coverage.
When you pay for your own health insurance, you tend to make educated
purchasing decisions aimed at conserving costs and getting value for your
money, notes Tyson.

"Many of these people are self-employed
and have unpredictable cash flows, or perhaps they found the individual
marketplace offered a better value than a spouse's group plan," he adds. "They
deliberately bought high-deductible plans to keep premiums low. Let's say
you're a middle-aged woman with a home-based business. Since you're past
childbearing age you chose a catastrophic plan without maternity coverage - and
now you're finding out that's no longer an option. It's upsetting."

Tyson says he has fielded many questions
from people seeking to understand the new health insurance rules and their
personal finance implications. Here are some of them along with Tyson's
answers:

•Why did my policy get canceled?

Individual plans that were in effect as
of March 23, 2010, were "grandfathered," meaning that you get to keep them even
if they don't meet the standards mandated by the ACA. However, if the policy
has been altered since that date - i.e., if the deductible, co-pay, or benefits
changed at all - you can't keep it. Most policies have been changed since that
date, for a variety of reasons, so they are being canceled.

In addition, people who buy individual
health insurance tend to change plans often anyway - so some people are losing
coverage because they changed insurance policies in, say, 2011.

"I've seen estimates that as many as 80
percent of individual policies will end up being canceled," notes Tyson. "So if
you haven't gotten a letter yet, chances are you will."

•Yikes! On the policy my insurance
company recommended to replace my canceled one, the premium has doubled and the
deductible has gone up by thousands of dollars. How can this be?

It's because of the essential health
benefits that, by law, must be included in new insurance policies that take
effect in 2014. These include maternity and newborn care, mental health and
substance use disorder services, prescription drugs, pediatric services (including
dental and vision care), to give a partial list. In the past, you were able to
pick and choose from plans that excluded some of these services and thus were
less expensive.

Plus, the ACA includes "consumer
protection" provisions that have elevated prices. For example, it prohibits
health insurance companies from limiting or excluding coverage related to
preexisting health conditions. In order to absorb this cost and costs related
to other provisions, insurance companies have raised rates across the board.

•Is my family eligible for a subsidy?

It depends on your family income and how
many children you have. Beginning in 2014, subsidies will be available to
qualified individuals and families whose incomes fall in the range of 138
percent to 400 percent of the poverty line (assuming they buy a policy on a
government exchange). At the top of the spectrum, an individual making just
under $46,000 would be eligible for a subsidy, as would a family of four
earning around $94,000.

"If you are self-employed and end up
receiving subsidies, be careful to keep track of your earnings," warns Tyson.
"If you end up making more than you thought you would in a given year, you
could end up having to pay back part of your subsidy. Of course, the converse
is also true: If you make less than expected, you may receive a refund."

•What happens if I don't replace my
canceled policy?

If you do not replace your canceled
policy with a qualified health plan, you will have to pay a penalty fee on your
tax return. The penalty fee for 2014 is $95 per adult and $47.50 per child (up
to $285) or 1 percent of your annual income - whichever is greater. This
penalty rises sharply thereafter; in 2016 it will be $695 per adult and $347.50
per child (up to $2,085) or 2.5 percent of annual income - again, whichever is
greater.

•Wouldn't it be smarter to just pay the
penalty? (It's much cheaper.)

Certainly, some people will choose to go
this route. Tyson has noted some anecdotal evidence suggesting that an, "If I
get sick then I'll get insurance since people with pre-existing conditions
can't be turned down" mindset is prevalent.

One problem with this strategy is that
beginning in 2014 you can purchase subsidized health insurance (barring special
circumstances like the birth of a baby) only during Open Enrollment - between
Oct. 15 and Dec. 7 of each year. If you miss that window and get diagnosed with
a serious illness in January you would have to wait many months to buy coverage
on the government exchanges.

You can, however, purchase a policy
outside the exchange at any time - but Tyson says banking on the ability to get
insured quickly enough is risky.

"A major car accident or illness can
happen too quickly to allow you to buy a policy," he notes. "The medical bills
that you would rack up almost overnight could devastate most people
financially."

•How long do I have to choose a new
policy?

To avoid a penalty fee you must apply
for a Qualified Health Plan by March 31, 2014. This deadline was extended from
Feb. 15 due to serious problems with the healthcare.gov website. But don't let
the extension make you complacent, warns Tyson.

"If your current health insurance policy
expires at the end of 2013, you will still need to make a decision by Dec. 15
to be covered by your new policy on Jan. 1," he notes.

•How can I find the best policy for me?

There are several ways to do so. You can
visit either healthcare.gov or your state's exchange (www.nystateofhealth.ny.gov) if you
think you might be eligible for a subsidy. If you have an independent insurance
agent you like and trust, it might be best to call her.

Regardless of how you purchase your
insurance you will find that qualified health plans have one of four
designations: bronze, silver, gold and platinum. Bronze plans have the lowest
monthly premiums and the highest out-of-pocket costs. Platinum plans are the
opposite: They have the highest premiums and the lowest out-of-pocket costs.

"Generally, the high-deductible bronze
plans are the way to go for most relatively healthy people," says Tyson. "They
have the lowest premiums. You just have to be disciplined enough to set aside
money for the higher out-of-pocket costs that could occur. In fact, choosing a
bronze plan that's compatible with a Health Savings Account is even better, as
it allows you to set aside money for medical expenses on a tax-free basis."

•I've talked to several insurance agents
and insurers and have heard conflicting information. How can I know what to
believe?

Obamacare is deeply confusing and not
just to consumers. The insurance company employees and agents have to learn
many new rules and regulations and this takes time. That's why Tyson suggests
you talk to several different insurers and agents and do a fair amount of
research before making a decision.

"It's important to invest some time in
this decision," he notes. "A woman told me she was looking for an
HSA-compatible plan and, at first, her insurance agent told her the company was
no longer offering them. The agent had been told this by two insurance company
representatives. After making several more phone calls and asking some probing
questions, the agent found out the company representatives had been wrong. If
something doesn't sound right, it pays to keep questioning."

•Why is this happening only to
individual policyholders? Is it going to affect people who get their insurance
through their workplace?

Basically, most group policies already
had more comprehensive (and expensive) coverage in place that met more of the
standards of the ACA. So far it appears that most larger employer plans are
seeing smaller changes. However, some employers are choosing not to offer
coverage, asking employees to cover more of the cost, or deciding to go with
more part-time employees (fewer than 30 hours/week) for whom they don't need to
provide coverage.

"To see exactly what happens to most
group coverage, we'll just have to wait," notes Tyson. "Almost certainly,
though, some smaller businesses will face rate increases - and how this
directly affects employee pocketbooks will vary wildly."

•It seems that this has happened to a
lot of people in my state. However, I have heard from people in other states
that their costs haven't increased. How can this be?

There are various reasons for the
disparity. Experts suggest that costs spiked more dramatically in states that
have fewer regulations on insurance to begin with. Thus, states that previously
did not require insurers to provide benefits like preventative care and
contraceptives now have to - so their prices necessarily rise. Also, in
general, states where more insurers are competing for customers will have lower
prices.

"The truth is, Obamacare is helping some
people in the short-term and hurting others," says Tyson. "As a financial
counselor, it is not my place to offer an opinion on whether this law is a positive
or negative force for our country. I can only advise individuals to educate
themselves, seek out the best value for their needs and their wallet, and go
into this transaction - like any transaction -
with their eyes open."

Five Ways to Cope with Higher Health Insurance Prices

•Don't just go with the plan mentioned
in the cancellation letter. Shop around. When you hear people say, "My premium
doubled!" they are generally referring to the comparable plan the insurance
company suggested in the cancellation letter. But Tyson says not to take the
number so literally - it's the price of just one of the possible plans
available to you.

"Call your agent and ask to see a
side-by-side comparison of various plans," he suggests. "Check out other
companies. If you are eligible for a subsidy, check out the exchanges. Chances
are you'll find something a little more reasonable if you're willing to make
trade-offs in the area of deductibles and out-of-pocket expenses."

•Be patient and do your homework. "Talk
to as many insurers and agents as you can," advises Tyson. "Spend some time on
the computer. Ask friends and colleagues what they're doing. While you do need
to be mindful of the end-of-the-year deadline, you don't want to rush into what
is really a very important financial decision.

"Plus, keep in mind the deadline has
already been moved once," he adds. "You never know, if the website problems
don't get straightened out, it could be delayed again."

•If you go with a bronze plan, consider
one that is compatible with an HSA. A bronze plan may be best for people who
are generally healthy. These have the lowest premiums. Of course, they also
have the highest deductibles, which means that in the event you do get sick,
you'll have to cover more of your costs out of pocket. And that, says Tyson, is
why it's important to select a bronze plan that's compatible with a Health
Savings Account (not all of the bronze plans are).

Here's how it works: You open a Health
Savings Account at your bank and contribute as much to it as you can each year.
Because contributions are tax deductible, the government sets limits on how
much you can set aside. In 2013 the limit is $3,250 for an individual and
$6,450 for a family. In 2014 these numbers will go up to $3,300 and $6,550
respectively. This money grows, tax free, year after year so that you can use
it to pay medical expenses that aren't covered by your health insurance policy.

"I have always recommended HSAs as a
great tax-saving strategy, and now that deductibles are so high, they make more
sense than ever," notes Tyson.

After all, if you have to have a high
deductible anyway, it makes sense to at least get the tax break on the
out-of-pocket expenses you have to pay.

•Do what you can to get and stay
healthy. Chances are you will now be paying more out of pocket for
non-preventative care, so good health has to become priority one, notes Tyson.
Of course, health insurance is needed because some conditions are
unpreventable, but there are plenty of others you can affect with lifestyle
improvements.

"Obviously, if you smoke, stop now -
smoking is the only 'preexisting condition' health insurance companies are
allowed to charge you more for," he says. "But it's also important to start
eating more healthfully, exercising, and losing weight if you need to. The
healthier you are, the less you'll need to seek medical care - and the less
you'll have to pay out of pocket for your care."

•Look for places to cut costs. Like it
or not, many people are just going to have to come up with more money to pay the
higher premiums and deductibles required under the Affordable Care Act. And
most people do have some excess "fat" that can be trimmed from their budgets.
We can dine out less, bargain shop, cut out expensive cell phone and cable
plans, take less expensive vacations. In short, we can simplify - and that's
not necessarily a bad thing, says Tyson.

"Some people may find that Obamacare is
the impetus to reevaluate how they're living their lives," he notes.
"Challenges have a way of bringing priorities into sharper focus. No one wants
to pay more for their health insurance - but instead of focusing on the anger
and fear we may be feeling, we can focus on slowing down and paying more
attention to friends, family, simple joys, and the things that really matter in
life."

Tyson is an internationally acclaimed
and bestselling personal finance book author, syndicated columnist, and
speaker. For more information visit www.erictyson.com.